Saturday, January 22, 2011

SOME MORE BAD NEWS BANK OF N.E. CONSTRUCTION-LOAN RATIO IS HIGH

Bank of New England, the ailing Boston institution that last week forced out its chief executive officer, Walter Connolly Jr., ranked ninth in the country in a recent survey measuring construction lending as a percentage of net worth.
The figure vividly highlights the primary source of Bank of New England's problems as it struggles to cope with loans gone sour in a regional economy that has drawn to a virtual standstill.
With an equity base of $773 million, Bank of New England carried loans valued at $1.56 billion for construction and land development projects, or 202 percent of the bank's equity, as of June 1989.
After several years of nonstop growth, Bank of New England is having to establish reserves for millions of dollars in questionable loans. The institution is under intense scrutiny from federal regulators who have set up shop in the bank's Boston offices.
Construction lending is among the highest-risk categories of financing. "Heavy construction lending does not necessarily mean that a bank will be in trouble, but the potential for big trouble is there," said Robert A. Bennett, editor of US Banker magazine, which ranked the banks in its January issue.
Bennett said real-estate lending often puts banks on a financial roller coaster, with profits high during building booms, but busting on the downside.
The US Banker study shows that 40 of the nation's 100 largest banks have loaned more than 100 percent of their equity to finance such high-risk construction projects.
Fleet/Norstar Financial Corp. of Providence, which has been singled out as a likely bidder for Bank of New England, ranked 14th on the list, with construction loans representing 167 percent of common equity. Despite its high ranking on the list, Fleet has yet to demonstrate systemic problems with its loan portfolio.
Not so the Bank of Boston. The big money-center bank that turned inward to regional after getting burned in Latin America is feeling the real-estate pinch. It ranked 20th on the list, with construction loans representing 148.5 percent of equity.
The following lists the top 10 banks and their construction loans as a percentage of common equity as of June 1989:
[Table]
1. Security Pacific (Ariz.) 347.0%
2. Maryland National Bank 341.7
3. Midatlantic (N.J.) 327.0
4. Riggs (Washington) 281.5
5. American Security (Washington) 250.6
6. Union Bank (Calif.) 238.5
7. Barnett (Fla.) 211.4
8. Bank of California 207.5
9. Bank of New England 202.3
10. Marine Midland (N.Y.) 184.4
JSIMON;12/29 CORCOR;01/01,16:04 BANKS30